Eversource 2005 Annual Report Download - page 27

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its retail transmission rate to collect $21 million of additional revenues
over the first six months of 2006. CL&P adjusts its retail transmission
rates on a regular basis, thereby recovering all of its retail transmission
expenses on a timely basis. This new tracking mechanism resulted
from the enactment of the new legislation passed by the Connecticut
legislature in 2005. WMECO implemented its retail transmission tracker
and rate adjustment mechanism in January of 2002 as part of its 2002
rate change filing. PSNH does not currently have a retail transmission
rate tracking mechanism.
LICAP: In March of 2004, ISO-NE proposed at the FERC an
administratively determined electric generation capacity pricing
mechanism known as LICAP, intended to provide a revenue stream
sufficient to maintain existing generation assets and encourage the
construction of new generation assets at levels sufficient to serve
peak load, plus fixed reserve and contingency margins.
After opposition from state regulators, utilities and various Congressional
delegations, the FERC ordered settlement negotiations before an ALJ
to determine whether there was an acceptable alternative to LICAP.
On March 6, 2006, ISO-NE and a broad cross-section of critical
stakeholders from around the region, including CL&P, PSNH and Select
Energy, filed a comprehensive settlement agreement at the FERC
implementing a Forward Capacity Market (FCM) in place of LICAP.
The settlement agreement provides for a fixed level of compensation
to generators from December 1, 2006 through May 31, 2010 without
regard to location in New England, and annual forward capacity auctions,
beginning in 2008, for the 1-year period ending on May 31, 2011, and
annually thereafter. The settlement agreement must be approved by
the FERC, and the parties have asked for a decision by June 30, 2006.
According to preliminary estimates, FCM would require the operating
companies to pay approximately the following amounts during the
31/2-year transition period: CL&P - $470 million; PSNH - $80 million;
and WMECO - $100 million. CL&P would be able to recover these
costs from its customers through the FMCC mechanism. PSNH and
WMECO also would be able to recover these costs from their customers.
Connecticut – CL&P:
Streetlighting Decision: On June 30, 2005, the DPUC issued a final decision
which required CL&P to recalculate all previously issued refunds (except
the towns of Stamford and Middletown) utilizing applicable approved
pre-tax cost of capital rates. The final decision also provided for a five-
year period for those towns that wish to phase in the purchase of their
streetlights in which they can complete the asset purchase. As a result
of this decision, CL&P recorded an additional $7.4 million pre-tax reserve
for streetlight billing in the second quarter of 2005 and subsequently
reduced the reserve by $3.3 million after submitting its compliance
calculations and receiving approval from the DPUC. The net impact in
2005 was an additional $4.1 million of pre-tax reserve. CL&P filed an
appeal of this decision on August 11, 2005 in the Connecticut Superior
Court. The courthas not yet set a schedule for the appeal.
Procurement Fee Rate Proceedings: CL&P is currently allowed to collect a
fixed procurement fee of 0.50 mills per kilowatt-hour (kWh) from
customers who purchase TSO service through 2006. One mill is equal
to one-tenth of a cent. That fee can increase to 0.75 mills per kWh if
CL&P outperforms certain regional benchmarks. The fixed portion of
the procurement fee amounted to approximately $12 million (approximately
$7 million after-tax) for 2004. CL&P submitted to the DPUC its proposed
methodology to calculate the variable portion (incentive portion) of the
procurement fee. CL&P requested approval of $5.8 million for its 2004
incentive payment. On December 8, 2005, a draft decision was issued
in this docket, which accepted the methodology proposed by CL&P
and authorized payment of the $5.8 million incentive fee. The DPUC
has not set a date for issuing a final decision.
Retail Transmission Rate Filing: As a result of the legislation described above,
CL&P filed for a transmission adjustment clause on August 1, 2005
with the rate tracking mechanism effective on July 1, 2005. The DPUC
approved the mechanism on December 20, 2005. On January 1, 2006,
consistent with that approval, CL&P raised its retail transmission rate
to collect $21 million of additional revenues over the first six months
of 2006.
CTA and SBC Reconciliation: The CTA allows CL&P to recover stranded
costs, such as securitization costs associated with the rate reduction
bonds, amortization of regulatory assets, and IPP over market costs,
while the SBC allows CL&P to recover certain regulatory and energy
public policy costs, such as public education outreach costs, hardship
protection costs, transition period property taxes, and displaced worker
protection costs.
Afinal decision in the 2004 CTA and SBC docket was issued on
December 19, 2005 by the DPUC. That decision ordered a refund to
customers of $100.8 million over the twelve-month period beginning
with January 2006 consumption. In a subsequent decision in CL&P’s
docket to establish the 2006 TSO rates dated December 28, 2005, the
DPUC ordered CL&P to issue a revised CTA refund of $108 million over
the twelve-month period beginning with January 2006 consumption
and an additional CTA refund of $40 million for the months of January,
February and March of 2006.
In the 2001 CTA and SBC reconciliation filing, and subsequently in a
September 10, 2002 petition to reopen related proceedings, CL&P
requested that a deferred intercompany tax liability associated with
the intercompany sale of generation assets be excluded from the
calculation of CTA revenue requirements. This liability is currently
included as a reduction in the calculation of CTArevenue requirements.
On September 10, 2003, the DPUC issued a final decision denying
CL&P’s request, and on October 24, 2003, CL&P appealed the DPUC’s
final decision to the Connecticut Superior Court. The appeal has been
fully briefed and argued. If CL&P’s request is granted and upheld
through these court proceedings, there would be additional amounts
due to CL&P from its customers. The amount due is contingent upon
the findings of the court. However, management believes that CL&P’s
pre-tax earnings would increase by a minimum of $15 million in 2006 if
CL&P’sposition is adopted by the court.
CL&P TSO Rates: Most of CL&P’scustomers buy their energy at CL&P’s
TSO rate, rather than buying energy directly from competitive suppliers.
CL&P secured half of its 2006 TSO requirements during bidding in
2003 and 2004. Bids to supply CL&P with its remaining 50 percent
2006 TSO requirements were received on November 15, 2005. On
December 29, 2005, the DPUC approved CL&P’s TSO rates for 2006.
As a result of significantly higher supplier bids for 2006, CL&P
increased TSO rates by 17.5 percent on January 1, 2006 and will
increase rates another 4.9 percent on April 1, 2006, representing a
total increase of $676.5 million on an annualized basis.